IRS Decreases 2018 HSA Contribution Limit Drops $50 for Family

The Internal Revenue Service (IRS) has announced that the 2018 annual limitation on health savings account (HSA) contributions by individuals with family coverage under a high deductible health plan (HDHP) is now $6,850. This limit was previously announced as $6,900, but has been revised downward due to an inflation adjustment provision in the Tax Cuts and Jobs Act. The 2018 annual limitation on HSA contributions by an individual with self-only coverage under a HDHP remains unchanged at $3,450.

Because these changes apply to tax year 2018, employees contributing to an HSA should be informed of the reduced maximum limit, and adjustments in contributions for the remainder of 2018 may be needed. Employees who have already contributed the maximum amount for 2018, such as a one-time HSA contribution from a beginning-of-the-year bonus payment, will need to receive a refund of the excess contribution.

Many employees calculate their pretax contributions to HSAs at the start of the year and don’t think about it again until tax time. Generally, employees who over-contribute to an HSA and don’t correct it will get hit with a 6 percent excise tax.

The good news is the IRS doesn’t make it too hard to fix it. If employees can catch an over-contribution before filing their taxes, they can avoid penalties by removing excess contributions and treating them as normal taxable income.